Debt is money you borrowed from a bank, family, or friend that usually accrues interest. Some debts are absolutely necessary especially when the money is used towards building a business or acquiring knowledge (student loans). On the other hand, some debts are totally unnecessary especially when used to finance lifestyle choices. Either way, debt robs your present and steals from your future thereby making it almost impossible to build wealth.
Not to worry, we have a few tips to help you become debt-free.
- Budgeting: When it comes to money management pertaining to the achievement of financial success, budgeting is always the first step. Asides from clearly outlining your cash inflows and outflows, creating a budget to pay off your debt ensures that you don’t pay off some debts while incurring another debt elsewhere. We recommend using a budgeting manager that helps you juggle the numbers until they balance.
- Cut Down On Your Expenses: Once you’re able to identify your expenses from your budget, you’ll have to make some tough choices to save money. Choices like cooking instead of eating out, staying home instead of hanging out with friends, buying less expensive brands when shopping for your essential items, and completely putting a stop to the purchase of non-essential or luxury items.
- Make More Money: Actively find ways to make extra money by having a side hustle, taking extra shifts, or doing some extra hours at work. You could also get some extra money from gifts, bonuses at work, a commission cheque, tax refunds, etc.
- Make Accelerated Payments: Making lump-sum payments helps to pay down debts faster. Another advantage of making higher payments is that you get lower interest rates in most cases. More importantly, the cash doesn’t sit around tempting you to spend it elsewhere.
- Stay Away From Your Credit Card: One of the ways to reduce debt is by not incurring more debt. Credit cards make spending very easy, so do yourself a favor and keep that credit card almost unreachable. The harder it is to reach, the less likely you are to use it.
Now, let’s talk about the two major strategies for paying off your debt quickly.
- Debt Snowball: Focus on paying off your smallest debt first while still making minimum payments on the other debts. As soon as the smallest debt is paid off, the amount you had been paying on it should be redirected into paying off the next smallest debt. This process should be repeated until all debts have been paid off.
- Debt Avalanche: Pay off the debt with the highest interest rate first while paying minimums on other debts and keep repeating the process. This strategy helps to save time and money over the course of your debt payoff.